More than 200 startups shut shop in India in 2016

While 2015 was a year of big-ticket funding rounds, 2016 is a year of harsh reality for the country's startup ecosystemShalina Pillai | TNN | Updated: December 28, 2016, 10:43 IST

While 2015 was a year of big-ticket funding rounds, 2016 is a year of harsh reality for the country's startup ecosystem: 212 startups have not survived to see 2017.

The number of startups that shut down their services this year is 50% higher than last year, when about 140 startups shuttered, according to data analytics firm Tracxn.

The biggest casualty in 2016 was grocery delivery startup PepperTap, which was dubbed the biggest competition to BigBasket last year. It topped the list of startups that shut after having raised the highest funding.

The Gurugram-based company, which started its operations in 2014, had raised more than $51 million from a league of big investors, including Sequoia Capital, Saif Partners and e-commerce major Snapdeal. In April, its founder Navneet Mishra announced the decision to close the grocery business.

Interestingly, PepperTap was not the only startup that decided to shut shop within two years of starting. Seven out of the top 10 startups that shut down after raising sizeable funds were founded in or after 2014.

These included online courier booking platform Parcelled, which wound up its business in June 2016, and DoorMint, which shut its on-demand laundry service in September due to lack of funds.

"This is a natural progression," says Mohan Kumar, executive director, Norwest Venture Partners India."When you look at the ecosystem, not more than 20% of the startups succeed. Two to three years after a startup's inception is a time when you see high mortality. There is too much competition, and only a few survive."

Since a lot of startups were founded during 2013, 2014 and 2015, it's natural many have shut shop, Mohan Kumar adds.

The list also includes Buildzar, an e-commerce marketplace for construction material. The Gurugram-based company stopped its services this month, just 11 months after raising $4 million from Puneet Dalmia, managing director of Dalmia Bharat.

"There is a growing intolerance for companies which are not performing; and there is increasing pressure from investors who are closely seeing what works and what doesn't. Investors know that there is credible capital that this country can't afford to waste, so there is very little merit in allowing such companies to continue running," says Ajay Hattangdi, CEO of venture debt provider InnoVen Capital.

The Temasek-backed InnoVen Capital, had lent $4 million to PepperTap last December. Hattangdi says the lender was supportive of PepperTap's decision to shut down. The founders made sure the loan obligation was repaid in full.

"Entrepreneurs will try rebooting, bootstrapping and running the company with minimum expenses; but if there is strong case for it to shut down, then it doesn't deserve life support," he adds.